Reuters: Hot Stocks: UPDATE 1-Zoomlion shares slide to 1-1/2 year low after profit warning

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UPDATE 1-Zoomlion shares slide to 1-1/2 year low after profit warning Apr 15th 2013, 03:48 Sun Apr 14, 2013 11:48pm EDT * Zoomlion warns Q1 profit may fall 60-80 pct on weak sales * Shares slide 9 pct to lowest since September 2009 (Adds background and quotes) HONG KONG/SHANGHAI, April 15 (Reuters) - Zoomlion Heavy Industry Science and Technology Co Ltd's Hong Kong-listed shares slid to a 1-1/2 year low after it warned of an up to 80 percent drop in first-quarter earnings, highlighting the struggles facing China's heavy machinery sector. The Chinese construction equipment maker, which derives the bulk of its sales from concrete machinery, will continue to face headwinds as long as the government maintains a tight leash on the housing market, said Xu Mingle, an analyst at BOC International. "So even though the economy is warming up, the latest effort by the government to rein in housing prices will continue to weigh on its earnings for the rest of the year," Xu said. Zoomlion, which competes with Sany Heavy Industry Co Ltd , issued the profit warning after the market close on Friday. China's heavy machinery sector slumped last year as companies struggled with mounting inventory and low utilisation rates, after a glut in machinery spending spurred by China's massive stimulus programme in 2008. About 50 percent of Zoomlion's sales come from concrete machinery, a sector that has underperformed the market, said Yang Song, a Hong Kong-based Credit Suisse analyst. "The fall (expected in first-quarter earnings) is driven by a 40 percent decline in top line and margin compression and also 100 million yuan in interest expense," Song said, referring to the company's issuance of two U.S. dollar-denominated bonds last year. "The construction machinery market is sort of at the bottom and it hasn't recovered despite a year, a year and half of decline," Song said. Zoomlion's Hong Kong-listed shares were trading down 8.6 percent at HK$7.59 as of 0215 GMT, after falling as low as HK$7.54 earlier in the session. That was the lowest since September 2011. Analysts also said that Zoomlion had an unfavourable product mix that relied too much on specific products in its concrete machinery division for high margins and sales. "Last year they had huge revenue growth from this long-arm concrete pump because they were grabbing market share from their competitors, but going forward their market share is already very high (so) it will be difficult for them to keep a sustainable growth in this segment," said Wenjie Ge, a Hong Kong-based Nomura analyst. Caterpillar Inc, the world's largest maker of construction equipment, said in August that it had started to export Chinese-made machinery to the Middle East and Africa to offset the dip in China's growth. ZOOMLION BONDS Zoomlion's bonds were steady on Monday in contrast with its shares. The bonds due 2017 are at 106/107 cents on the dollar and those due 2022 are at 97/98. The bonds are technically well supported - the existing debt is placed with strong investors while supply has been very thin relative to the property segment, the other significant constituent of the high-yield sector. "Companies still have free cash reserves since they have curtailed capex. Zoomlion also has a lot of bank access for its needs, so even though fundamentals have weakened the liquidity is still okay," said a Hong Kong based trader. "This name is partially held by the Hunan local government so people still regard it as a sort of a semi-SOE, there are no worries about a default." (Reporting by Donny Kwok and Melanie Lee; Additional reporting by Fang Yan in BEIJING; Editing by Kazunori Takada and Chris Gallagher) Link this Share this Digg this Email Reprints

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